Slater & Gordon Limited launches giant compo claim against AMP Limited

The AMP Limited (ASX:AMP) share price just printed another 52-week low.

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Under fire wealth management and financial advice business AMP Limited (ASX: AMP) is not out of the woods yet as it is reportedly facing up to five different class actions from fee-hungry lawyers and their shareholder clients.

Slater & Gordon will undertake its claim work for shareholders on a 'no win, no fee' basis which sounds good for aggrieved shareholders until you consider it will likely calculate subtantial commission fees on a basis of net compensation awarded.

The litigation funder named as Therium will also want its cut of the total compensation awarded assuming the action is successful.

Slater & Gordon will claim that AMP failed to disclose to the ASX some egregious business practices that came out in the wash during AMP's pasting at the Royal Commission into financial services.

The lawyers will allege that AMP failed to notify investors that it charged clients fees for no services, and misled ASIC over its unusual fee-charging practices.

In response the AMP share price has hit a multi-year low of $3.67, while this is a business I have warned investors to avoid multiple times over the past four years and long before the Royal Commission allegations occurred.

Paying a huge compensation bill to out-of-pocket investors is a one-off problem AMP faces, but more generally its business model has struggled for a long time.

The life insurance sector in particular has faced headwinds, with merger activity increasingly prevalent in response. While the problems at AMP's financial advice business speak for themselves and show how management competence at the sprawling organisation is nowhere near where it needs to be.

If you want to make money investing in the financial services space you must look to quality operators run for shareholders not just members of staff. As such I'd still favour Macquarie Group Ltd (ASX: MQG) as one of the few investment grade financial services businesses on the local market.

Motley Fool contributor Tom Richardson owns shares of Macquarie Group Limited. You can find Tom on Twitter @tommyr345 The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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